Jet Airways, Kingfisher - Rivals No More?

Indian airline rivals eye tie-up

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ft.com |
Oct 13, 2008

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India’s largest private airline, Jet Airways, and its fiercest rival, Kingfisher, are in talks over a potential cost-cutting operational tie-up, as Indian carriers struggle to survive the squeeze of rising costs and declining passenger traffic.

Naresh Goyal, the chairman of Jet, met Vijay Mallaya, Kingfisher’s flamboyant chairman, in Mumbai to explore potential co-operation in areas such as ground handling and marketing, Indian television channels reported.

The talks reflect the severity of the crisis facing India’s aviation industry. The International Air Transport Association estimates the Indian industry is facing possible combined losses of about $1.5bn in 2008.

Kapil Kaul, of the Centre for Asia Pacific Aviation, said the talks appeared to be a “sensible” response to the extremely difficult circumstances facing airlines.

However, he was sceptical that any working collaboration between the formerly fierce rivals would lead to a full-scale merger, which he termed “a wild idea”.

“It’s very positive news that they are willing to look at avenues to reduce losses,” he said. “Market conditions are changing so dramatically, you need to do something.”

The Federation of Indian Airlines has already appealed for government financial assistance and regulatory changes to help carriers pare their losses, but analysts suggest carriers have little prospect of getting the relief they seek.

“Every airline is bleeding right now,” said Raajeev Batra, head of KPMG’s transport practice. “If they don’t bail out the airlines right now, we may see some dropping out.”

India’s domestic airlines have grown rapidly over the past several years, expanding fleets and route networks. In the past three years, air passenger numbers grew an average of 20-25 per cent annually, with a hefty 33 per cent increase in 2007.

But, more recently, Indian carriers have seen passenger numbers falling as higher global oil prices and a depreciating rupee pushed up ticket prices and sent many former flyers back to the railways.

After rising just 7.5 per cent from January-June this year, passenger numbers are now dropping and Mr Batra estimates passenger load factors at below 50 per cent

Airlines have already been trying to cut costs and boost efficiency. Jet said this weekend it would drop its Mumbai-Shanghai-San Francisco route from mid-January, and it has also shelved plans for its low-cost arm, JetLite, to start flying to the Middle East and south-east Asia. Kingfisher Airlines is returning surplus planes, and has deferred the delivery of new planes ordered from Airbus.

But airlines have also sought a more supportive regulatory framework and financial aid. In a recent appeal, carriers asked for $1bn in an interest free loan to help them.